The Wall Street Journal: Saturday, August 24, 2013

CEO Exit Sets Microsoft on New Path (page A1): In announcing his sudden retirement Friday after more than three decades at Microsoft Corp., Chief Executive Steve Ballmer will leave his successor with the enormous task of reviving one of the world’s largest technology companies that finds itself beset by competitors on all fronts. Mr. Ballmer, 57 years old, along with his college buddy and Microsoft founder Bill Gates, built the company into a profit machine whose Windows operating system will still power nearly all the 305 million personal computers expected to be sold globally this year, according to research firm Gartner Inc. But it will run just 15% of all computing devices, if PCs, smartphones, tablet computers and other gadgets connected to the Internet are lumped together, given the rise of rivals such as Apple Inc. and Google Inc. Investors cheered the news of Mr. Ballmer’s departure, sending Microsoft shares up 7% to $34.75 on the Nasdaq Stock Market. Microsoft remains a behemoth financially. It generated nearly $78 billion in revenue in the year ended June 30—an average pace of $150,000 worth of sales every minute. The company’s fat profit, amounting to $21.86 billion last year, remains the envy of most industries. Under Mr. Ballmer’s watch, the company succeeded in limiting many threats, including the open software standard called Linux that Mr. Ballmer once described as a “cancer.” He also helped Microsoft recover from the shock of the U.S. government’s effort to break the company apart. But Microsoft generates nearly all of its profit from a trio of products—Windows, Microsoft Office and related software to run companies’ back-end computing gear—that are deeply dependent on the sales of Windows-powered PCs. Other products, such as the Xbox videogame machine and the Bing search engine, are either unprofitable or only marginally so.

The Real Reason College Costs So Much (page A9): Another school year beckons, which means it’s time for President Obama to go on another college retreat. “He loves college tours,” says Ohio University’s Richard Vedder, who directs the Center for College Affordability and Productivity. “Colleges are an escape from reality. Believe me, I’ve lived in one for half a century. It’s like living in Disneyland. They’re these little isolated enclaves of nonreality.” Mr. Vedder, age 72, has taught college economics since 1965 and published papers on the likes of Scandinavian migration, racial disparities in unemployment and tax reform. Over the last decade he’s made himself America’s foremost expert on the economics of higher education, which he distilled in his 2004 book “Going Broke by Degree: Why College Costs Too Much.” His analysis isn’t the same as President Obama’s. College costs have continued to explode despite 50 years of ostensibly benevolent government interventions, according to Mr. Vedder, and the president’s new plan could exacerbate the trend. By Mr. Vedder’s lights, the cost conundrum started with the Higher Education Act of 1965, a Great Society program that created federal scholarships and low-interest loans aimed at making college more accessible. In 1964, federal student aid was a mere $231 million. By 1981, the feds were spending $7 billion on loans alone, an amount that doubled during the 1980s and nearly tripled in each of the following two decades, and is about $105 billion today. Taxpayers now stand behind nearly $1 trillion in student loans. Meanwhile, grants have increased to $49 billion from $6.4 billion in 1981. By expanding eligibility and boosting the maximum Pell Grant by $500 to $5,350, the 2009 stimulus bill accelerated higher ed’s evolution into a middle-class entitlement. Fewer than 2% of Pell Grant recipients came from families making between $60,000 and $80,000 a year in 2007. Now roughly 18% do. This growth in subsidies, Mr. Vedder argues, has fueled rising prices: “It gives every incentive and every opportunity for colleges to raise their fees.”

Enter the Post-Ballmer World (page B1): Microsoft Corp.’s Steve Ballmer tried new operating systems, new gadgets and new management structures. But the times caught up with a man who helped build one of the greatest companies of the 20th century. Mr. Ballmer’s surprise retirement announcement Friday follows years of criticism about the waning growth and stagnant stock price of Microsoft, a force in the personal-computer era whose power was once so great that U.S. regulators sought to break up the company. PC sales—the lifeblood of Microsoft’s business—are on a steady decline. Business and casual users alike are switching to devices and services offered by Apple Inc. and Google Inc. Investors cheered the news, pushing Microsoft shares up 7%, or $2.36, to $34.75, in 4 p.m. trading Friday on the Nasdaq Stock Market. Microsoft’s offerings to customers “are downright confusing,” said Daniel Gasparro, an IT consultant who recently managed Microsoft software purchases for clients including Washington, D.C. law firm Patton Boggs LLP. “When you’re spread too thin, you’re not good at anything.” Mr. Ballmer, who took the reins from Chairman Bill Gates in January 2000, has responded to the changes by recently overhauling the company’s Windows software to be used with touch commands and introducing a Microsoft-designed tablet computer called Surface. More broadly, Mr. Ballmer has attempted in the past year to remake the company’s overarching strategy to become a provider of devices and services rather than emphasizing software sales. A management structure announced in July that abandons autonomous product groups is expected to speed the transition. But the shifts haven’t yet helped reignite the company’s growth, though its longtime businesses continue to produce healthy profits. Its stock hasn’t shown significant gains since the crash following the Internet bubble, which had taken its share price to a high of $58.03.

Inside Comcast’s $30 Billion TV Bet (page B1): Cameras popped as celebrities stepped out of tinted-window vehicles at a Manhattan ballroom where E! cable network was hosting an event for advertisers. Kim Kardashian preened on the red carpet while Ryan Seacrest chatted with fans. But Steve Burke, the CEO of E’s parent, NBCUniversal, was decidedly not in a partying mood. “I want to kill myself,” he said before ducking into an elevator. “They tried to get me to do the red carpet, but I said ‘no’,” he laughed. When the doors opened, a woman asked him to pose for a picture with the Olympian swimmer Ryan Lochte. “You’re a good sport to put up with all of these suits,” he told Mr. Lochte, leaning in for the photo. In the two years since Comcast Corp. bought NBCUniversal, Mr. Burke has shown a zeal for shaking things up with little sentimentality, weeding out some of the company’s most well-known personalities in the process. A straight-talking Harvard Business School graduate, Mr. Burke belongs to a new generation of media chieftains—including Time Warner Inc.’s Jeff Bewkes and Viacom Inc.’s Philippe Dauman—who are more enamored with the bottom line than with Hollywood glamour. He refrains from hanging out in the news rooms and indulging stars—hallmarks of his predecessor Jeff Zucker. Warren Buffett, who made him a director on his board at Berkshire Hathaway, describes him as “a personable guy, but not flamboyant.” Mr. Burke is the man in charge of pulling off a colossal wager. With Comcast’s two-stage, $30 billion deal completed in March, the cable giant is betting that its distribution business, combined with a content company, can create outsize benefits. That logic, of course, runs counter to the trend of big U.S. media companies breaking themselves into smaller pieces. Time Warner Inc. spun off its cable operations in 2009 after failed bids to happily marry its content and distribution arms; Viacom Inc. carved out its CBS broadcast television and radio business into a separate company in 2005. Mr. Burke argues that the Comcast model is different, and that the company he took over from General Electric Co. was “very broken.” “You don’t get a chance to buy a company like NBCUniversal unless it’s not doing well,” he said in his first major interview, sitting in an office notable only for its multiple television screens and many framed family photos. “We started from the premise there is a lot of opportunity here.”

Intern’s Death Scrutinized (page B2): Bank of America Merrill Lynch has appointed a committee of senior officials to investigate the circumstances surrounding the death of a summer intern in London, the bank said. The bank’s statement said the “formal senior working group” would “review all aspects of this tragedy” and “listen to employees at all levels” as more information becomes available. The group at the investment-banking division of Bank of America Corp. will be looking at, among other things, whether its interns and other junior employees are encouraged to work overly long hours or are pushed into unhealthily competitive environments as they vie for a limited number of jobs, said a person familiar with the situation. Moritz Erhardt, who was 21 years old, died on Aug. 15, just before completing his internship with the bank’s investment-banking group. While his cause of death is unknown, it has become a cause célèbre in the U.K., generating widespread media coverage. Like other Bank of America interns, Mr. Erhardt was rotating through the division, working on a variety of projects. Long working hours were the norm, as is often the case at investment banks in London, according to a person familiar with the matter. Interns at investment banks often work between 60 to 80 hours a week, said Scott Rostan, founder of Training the Street Inc., which provides financial-training courses for new Wall Street employees.

Friday’s Markets: Microsoft Helps Pull Stocks Up (page B5): U.S. stocks ended the week on a bright note, as a drop in Treasury yields and a rally in Microsoft helped divert investors’ attention away from recent concerns over Federal Reserve policy. It was an eventful week for stocks, if not an active one in terms of volume. Stocks slumped early in the week, with blue chips experiencing the longest losing streak in over a year and Treasury yields jumping to two-year highs, amid increasing worries that an improving economy would prompt the Fed to start slowing the flow of liquidity by tapering bond purchases as early as September. The market started rebounding on Thursday, as investors shook off technical issues that forced trading halts in all Nasdaq Stock Market-listed for three hours that afternoon. The Dow Jones Industrial Average rose 46.77 points, or 0.3%, to 15010.51 on Friday. The Dow still posted a third-straight weekly loss, the longest such stretch since November 2012. The S&P 500-stock index gained 6.54 points, or 0.4%, at 1663.50, and the Nasdaq Composite Index advanced 19.09 points, or 0.5%, to 3657.79. The S&P 500 and Nasdaq posted weekly gains.

Investors Embark on a European Tour (page B7): Things are starting to come together for the continent that almost fell apart. The economy in the 17-member euro zone is growing again—slowly—after contracting for more than a year. Signs of revival are showing up in data on business activity and consumer confidence. As in the U.S., central bankers’ extraordinary commitment to injecting cheap money into their economies has so far helped avert disaster. The euro zone hasn’t splintered, as some feared, and no country has dropped the common currency. As worries ease, markets are up from Ireland to Italy. Benchmark national indexes in the U.K., France and Germany have climbed at least 10% this year. The pan-European Stoxx Europe 600—akin to the S&P 500 in the U.S.—is up 19% in the 13 months since Mario Draghi said the European Central Bank, which he heads, was “willing to do whatever it takes to preserve the euro.” Investors planning their own grand investing tour of Europe’s stocks should know there still are discounts available. But as many a shopper in the markets of London, Paris or Rome will agree, it can pay to be choosy. For instance, many fund managers see more near-term upside in consumer goods and banks than in European utilities or energy firms. There are several options for investors. Low-cost index funds, such as the Vanguard FTSE Europe exchange-traded fund—which charges 0.12% in fees, or $12 for every $10,000 invested—offer broad exposure that includes many of the region’s global heavyweights. There also are actively managed, Europe-focused funds run by stock pickers who try to beat benchmark indexes, and global funds that feature a hefty dose of European exposure. In addition, many European companies issue American depositary receipts that trade like shares on U.S. exchanges. Some firms only trade on home-country exchanges, which U.S. investors can access through brokers or international accounts, though this typically involves taking on currency risk and navigating complicated tax rules.

Lofty Profit Margins Hint at Pain to Come for U.S. Shares (page B7): Profit margins at near-record levels—watch out below! If you are wondering what might prove to be the stock market’s Achilles’ heel, look no further than its dependency on near-record corporate profit margins. Any sizable decline would almost certainly translate into big losses for the stock market. Given the current high levels, such a retreat seems likely. Investors therefore may want to begin building up a healthy cash position to take advantage of lower prices in coming years. U.S. corporations, on average, currently report a profit of 9.3 cents for every dollar of sales, according to U.S. Commerce Department data—a profit margin of 9.3%. It has gotten only slightly higher than this over the past six decades: In the fourth quarter of 2011, it was 10%. The average since 1952 is 5.9%. Profit margins in the past have exhibited a strong historical tendency to “revert to the mean,” according to James Montier, a visiting fellow at the U.K.’s University of Durham and a member of the asset-allocation team at Boston-based GMO, an investment firm with $108 billion under management. That is, above-average levels in the past have tended to quickly fall, just as below-average levels in the past have soon risen. Consider all occasions since the early 1950s in which the profit margin rose to at least 6.9% or fell to at least 4.9%—one percentage point away from its historical mean, in other words. On average, it was back at its mean in just 4.8 years.

Microsoft: Hitting Ballmer Out of the Park (page B14): Merely by announcing his retirement, Steve Ballmer can more than pay for it. Shares in Microsoft leapt more than 7% Friday when the software giant announced its chief executive will retire within 12 months. Owning 333 million shares of Microsoft, Mr. Ballmer’s personal net worth increased by about $800 million on the news. Microsoft needs a change in leadership. This is a company that, after establishing its dominance in the personal-computing market 30 years ago, whiffed badly on two of the next three computing megatrends: the Internet and mobile. Former CEO Bill Gates deserves blame for missing the Internet. Blowing it in mobile is Mr. Ballmer’s error, having taken the reins in 2000. And that is arguably more dangerous to Microsoft’s long-term financial outlook, because one of the company’s largest businesses is writing software that powers computers, most successfully in PCs and servers.

Tell Harvard What You Think (page C3): This spring, with little fanfare, the folks behind the Common Application—the main application form for almost 500 of the nation’s top colleges and universities—announced a big change: the personal statement, the form’s core essay, has been extended from 500 to 650 words long. I thought: That’ll be $13,000. Several years ago, on a high floor in a midtown Manhattan office, a father offered me $10,000 to write his son’s personal statement. Apparently he had misunderstood what was meant by “independent college applications adviser.” The publishing industry may be in a tailspin, but in some places, writers can still earn $20 a word. Thanks to the Common Application’s changes (and not including inflation), that’s $13,000 a kid. Though I had other “day jobs,” for 15 years I worked discreetly as a college-applications adviser in cities from Los Angeles to London. I never wrote a student’s essay, but I was practicing a dark art: such tutoring privileges the elite whose parents can afford it and profits from a miserable process. The grim statistics of the college admissions race (last year Harvard reported a 5.79% acceptance rate), fueled by an obsession with trophy schools, have warped what might be a powerful threshold for adolescents. At the very moment when teenagers are invited to offer what they’ve learned and who they’ve become, their voices are hijacked by well-meaning adults who think kids can’t possibly be allowed to risk answering these questions on their own. In my years handling applications to elite schools, from Harvard to Haverford, Davidson to Dickinson and everything in between, I was often surprised by where students did gain acceptance. But in every case it was a student who wrote a fabulously independent essay. Not necessarily hyper-sophisticated. But true. My students always asked me, What should I write about? I’d answer: You are a student of the world. What is it that moves you? What incites you, enrages you? The first-person pronoun is a mighty tool. Use it.

Weekend Confidential: An Interview with Edward Frenkel (page C11): The words love and math aren’t usually uttered in the same breath. But mathematician Edward Frenkel is on a mission to change that, uniting the terms in both his recent film, “The Rites of Love and Math,” and upcoming book, “Love and Math.” Both are attempts to bridge the gap between his passion for math and the popular appetite for it. “You say the word ‘math’ and people shut down,” says Mr. Frenkel, sitting outdoors in New York’s Bryant Park. In his book, to be published in October, the tenured professor at the University of California at Berkeley argues that the boring way that math is traditionally taught in schools has led to a widespread ignorance that may have even been responsible for the recession. “It’s like teaching an art class where they only tell you how to paint a fence but they never show you Picasso,” he says of elementary school math classes. “People say, ‘I’m bad at math,’ but what they’re really saying is ‘I was bad at painting the fence.’ ” Love is a different story, though. “People might think they hate math but everyone loves love,” he says. “I want to put more love into math.” And Mr. Frenkel, a youthful, puckish 45-year-old with a slight Russian accent and a flair for fitted shirts and tailored jeans, hopes to be math’s next leading man. With YouTube videos of his lectures at UC Berkeley viewed by hundreds of thousands of people—”and that’s even the most boring stuff,” he adds—Mr. Frenkel does indeed talk about math adoringly. “It is this great connector,” he says. “Nobody can take it away from us.” What he means is that while the philosopher Pythagoras lived over 2,000 years ago, his theorem still exists today; it holds true across cultures, time and space. “How many things have the same endurance?” he asks. Mathematical formulas “have a quality of inevitability.”

Suites Get Even Sweeter (page D1): Over the past few years, the world’s fanciest hotels have been introducing a new generation of incredibly posh suites. These signatures spaces have eye-widening views and couture furnishings, and they are immense—in many instances, bigger than the average American home, which is about 2,200 square feet, according to the U.S. Census. In tourist magnets like New York, Paris, London and Dubai, the suites can be priced at tens of thousands of dollars a night. “These are for people who don’t pay their own bills,” said Steven Carvell, associate dean for academic affairs at the Cornell University School of Hotel Administration. “They have people who pay their bills for them.” Some of these super-suites are the crowning glories of new, haute hotels hoping to make a splash; others are being carved out of existing space by properties seeking to raise their profiles in the luxury market. And plenty are remakes of older suites that had faded and grown dated over the years.

Juicing, A to Z (page D7): “A juice bar on every corner” could be the unofficial slogan of the Obama era. In New York, the trend hit critical mass in the last year or so, but long before that, there was Melvin Major, Jr. “When I got into juicing 23, 24 years ago, it was kale, collards, chard,” he said of the prevailing circa-1990 approach. “I couldn’t do all-green—it was too hard-core. I wanted a great taste.” Today, at Melvin’s Juice Box in SoHo, Mr. Major serves the Jamaican Green, a lively kale, apple, lemon, ginger and celery blend with terrific body and a mineral finish. To describe a juice in this way—as one might a wine—is beginning to make sense now that more chefs are getting into the game. At long last, juice is having its epicurean moment. The new wave runs to refined combinations like beet, blood orange, fennel and shiso leaf—aka the Zest for Life, at Creative Juice in New York. (The juice’s creator, chef Michael Romano, said, “I’d serve it with a meal, something like roasted venison.”) Or elegantly spare sips like a honeydew, cilantro and lime mix at Moon Juice in Venice, Calif. Owner Amanda Chantal Bacon, a veteran of top restaurant kitchens, said, “I didn’t want to distract from the honeydew. The lime just polishes it a bit.” Up the beach in Santa Monica, Matthew Kenney of the acclaimed raw-vegan restaurant M.A.K.E. spikes his citrusy Spice-C with jalapeño. “You’re getting superpowered nutrition; you should feel it,” he said. “It’s a dynamic mouth experience.” Mixologists are expanding the repertoire of ingredients still further. In Portland, Ore., Lydia Reissmueller of TenderBAR is in the process of launching her own juice company. Her Succotash Smash of squash, tomato and sweet pepper gets its exotic herbal note from Mexican epazote. Among serious home juicers, cold-pressing—a slow process said to extract a more nutrient-rich juice—is the prevailing orthodoxy. But for those just starting out, Matt Shook of JuiceLand in Austin, Texas, recommends the easy-to-use Breville Juice Fountain (models start at $100), a centrifugal machine that pulverizes produce and spins to separate juice and pulp. The 26 fruits, vegetables, herbs and spices featured here are another great place to start. Use them in the recipes below, or just go with whatever tastes good to you. Delicious is the new hard-core.

2013_08_24_cmyk_NA_04To Tokyo with Gadget Love (page D11): Rest and relaxation in Waikiki. A boys’ night out in Vegas. Gadget shopping in Tokyo. Most guys might choose the first two escapes, but I’ve been going to Tokyo every year for the past decade to seek out the newest gizmos—products that haven’t yet made it to the west or are simply too niche to ever be imported. In my travels, I’ve found tiny wooden speakers hand-carved out of rare Japanese cedar, silicone keyboards that roll up like a burrito and a Gameboy cartridge filled with 500 games that were never released stateside. Some of the gadgets are brilliant solutions to urgent nerd problems; others will leave you dumbfounded. Don’t let the sillier products deter you, though. For every bewildering gadget you’ll find, a dozen more will be worth taking home. And, luckily for tech-obsessed tourists, getting around is easy: Most of the key stops are in the Akihabara neighborhood, on the Japan Railway’s Yamanote line. Here are five of my favorite spots, as well as a few of the curios that I found on my latest trip. While you can buy some of these products online, there’s no substitute for making an actual pilgrimage.

Don’t Let the Tech out of the Bag (page D12): Two bags keep your iPad, iPhone and other essential gear at the ready, here are two backbacks: the Osprey Pixel Port and Cocoon SLIM.